TREASURIES-Yields fall as data shows people staying longer out of work
By Tatiana Bautzer
NEW YORK, June 26 (Reuters) - Yields on 2-year Treasury notes eased on Thursday morning after the Labor Department reported a slight fall in weekly jobless claims, but higher recurring claims indicated that more people are staying out of work for longer.
"You are starting to see some cracks in the labor market, and that may give some confidence to markets that the Federal Reserve can begin easing in September," said Stan Shipley, fixed income strategist at Evercore ISI in New York.
Other data released on Thursday also showed signs of a deceleration in the U.S. economy.
First-quarter GDP was also revised lower, although data going through March did not impact the Treasury market.
"The GDP data points to a consumer under pressure in the first quarter. This makes tomorrow's consumption release all the more relevant," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, referring to the Personal Consumption Expenditures report, the Fed's preferred inflation gauge.
Durable goods orders rose more than expected in May, but the main factor was the surge in commercial aircraft bookings. Outside the transportation industry, orders were muted.
Although markets have been increasing the odds of a rate cut in July, "we would need really awful job market news for that to happen", Shipley added.
According to CME's FedWatch tool, there is a 26% chance of a first 25-basis-point rate cut happening next month. The tool shows a 92% chance of lower rates in September.
The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 2.8 basis points to 4.265% and was down 1.8 basis points on the 30-year bond US30YT=TWEB, at 4.824%.
The 2-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 4.5 basis points to 3.734%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 52.7 basis points.
The Treasury is expected to sell $44 billion in 7-year notes this afternoon. Demand in the auctions this week has been underwhelming.
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